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Biotron Limited (ASX:BIT) shares sank 27% lower on Wednesday

The Biotron Limited (ASX: BIT) share price was a big mover on the market again on Wednesday, but unfortunately on this occasion it was in the wrong direction.

The drug development company’s shares finished the day down by 27% to 16 cents.

This means that Biotron’s shares have now fallen 63% since peaking at 44 cents earlier this month.

Why were Biotron’s shares smashed on Wednesday?

While I suspect that profit taking from day traders has been largely to blame for its sharp decline over the last few days, there was news out of the company this morning that could have influenced proceedings.

Biotron released its quarterly report for the three months ended September 30 before the market opened. That update revealed a cash outflow from operating activities of $606,000. Which means that combined with small outflows from financing and investing activities, Biotron’s cash position was reduced to $896,000 at the end of the quarter.

For the quarter to come the company expects cash outflows of $698,000 due to research and development, staff, and administration and corporate costs. This may have investors concerned that a capital raising is going to be required in the near future to fund its operations.

While I wouldn’t rule out a capital raising entirely, it is unlikely to be required during the current quarter. This is because since the end of the last quarter the company has received an R&D tax incentive refund of approximately $1.1 million and also signed an options underwriting agreement with CPS Capital.

The latter means the company will receive around $4.7 million when 78.4 million options expire on November 30 with a 6 cents per share exercise price.

Based on its current outflows, these funds could keep the company going for the next couple of years.

Should you buy the dip?

While its cash position appears positive, that doesn’t necessarily mean that I would be buying its shares today. I think Biotron is an exciting company due to the potential of its BIT225 drug, but there’s still a long road ahead for the company before it is generating meaningful revenues.

For now, I intend to keep Biotron on my watchlist and consider relatively safer healthcare shares such as CSL Limited (ASX: CSL) and Mayne Pharma Group Ltd (ASX: MYX).

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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